A catch-up contribution is available for plan participants starting in the year age 50 is reached. For these participants, the annual deferral limit can be exceeded by the catch-up amount. Keep the following in mind:
- The annual deferral limit is based on the participant’s tax year; this is a calendar year limit, even if the plan year is an off-calendar plan year end.
- In order for a plan to accept a catch-up contribution, it must be permitted in the plan document.
For 2024, the deferral limit was $23,000 and the catch-up contribution limit was $7,500, for a total of $30,500. For 2025, the deferral limit is $23,500 and the catch-up contribution limit is $7,500, for a total of $31,000.
As part of SECURE 2.0, a higher catch-up contribution will be available beginning on January 1, 2025, so long as a plan has chosen to adopt the new provision. To take advantage of the higher contribution, a participant must be age 60 to age 63. This contribution stops being available during the calendar year in which the participant reaches age 64.
This means a participant aged 60-63 would have the option to defer $34,750 in 2025 ($23,500 deferral limit plus $11,250 catch-up. If you decide to include this new provision for 2025, it’s important to ensure the payroll provider can track this information and that the participants are aware of the option and complete the necessary election forms.
Those participants aged 50-59 and over 63 are still able to take advantage of the standard catch-up and can defer $31,000 ($23,500 plus $7,500) for 2025.
This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.
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